10QSB 1 ctd10qsb-09302001.txt CTD 10QSB (THIRD QUARTER 2001) SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-QSB __X__ Quarterly Report Under Section 13 or 15(d) of The Securities Exchange Act of 1934 for the Quarterly Period Ended: September 30, 2001. ____ Transition Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Transition Period From ____ to ____ Commission file number: 0-24930 CTD HOLDINGS INC. (Exact name of registrant as specified in its charter) Florida 59-3029743 (State or other jurisdiction (IRS Employer of incorporation or organization) Identification No.) 27317 N.W. 78th Avenue, High Springs, Florida 32643 (Address of principal executive offices) (Zip Code) Issuer's telephone number, including area code: 386-454-0887 Former name, former address and former fiscal year, if changed since last report: 3713 SW 42nd Avenue, Gainesville, Florida, 32608 Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes Applicable only to issuers involved in bankruptcy proceedings during the preceding five years Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15 (d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. No. Applicable only to corporate issuers As of November 12, 2001, the Company had outstanding 5,004,168 shares of its common stock. Transitional Small Business Disclosure Format (Check One): No. Index to Form 10QSB Part I - FINANCIAL INFORMATION Page Item 1. Financial Statements (unaudited) Balance Sheet September 30, 2001...................................F-1 Statements of Operations - Nine Months Ended September 30, 2000 and September, 2001.......................F-3 Statements of Cash Flows - Nine Months Ended September 30, 2000 and September 30, 2001....................F-4 Notes to Financial Statements......................................F-6 Item 2. Management's Discussion and Analysis or Plan of Operation........................................................10 Part II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit Description Page (2) Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession ..................................None (4) Instruments defining the Rights of Security Holders ........None (10) Material Contracts .........................................None (11) Statement re: Computation of Per Share Earnings .........Note 3, Financial Statements (15) Letter re: Unaudited Interim Financial Information ........None (18) Letter re: Change in Accounting Principle .................None (19) Report Furnished to Security Holders ......................None (22) Published Report re: Matters Submitted to Vote of Security Holders...........................................None (23) Consents of Experts and Counsel............................None (24) Power of Attorney..........................................None (99) Additional Exhibits........................................None (b) Reports on Form 8-K: None PART I: Financial Information CTD HOLDINGS INC. CONSOLIDATED BALANCE SHEET (Unaudited) ASSETS September 30, 2001 -------------- CURRENT ASSETS Cash and cash equivalents $ 4,944 Accounts receivable 20,006 Inventory 47,181 Notes receivable 12,785 Other current assets 2,812 ------------ Total current assets 87,728 PROPERTY AND EQUIPMENT, net 394,298 OTHER ASSETS Intangibles, net 3,580 ------------ TOTAL ASSETS $ 485,606 ============ (continued) F-1 CTD HOLDINGS, INC. CONSOLIDATED BALANCE SHEET (Unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY September 30, 2001 ------------------ CURRENT LIABILITIES Accounts payable and accrued expenses $ 137,466 Current portion of long-term debt 19,407 Line of Credit 20,420 Due to Shareholder 92,078 ------------- Total current liabilities 269,371 ------------- LONG-TERM DEBT, less current portion 152,131 ------------- STOCKHOLDERS' EQUITY Class A common stock, par value $ .0001 per share, 9,900,000 shares authorized, 4,791,220 shares issued and outstanding; Class B non-voting common stock, par value $ .0001 per share, 10,000,000 shares authorized, 0 shares issued and outstanding 480 Additional paid-in capital 1,954,498 Accumulated deficit (1,890,874) -------------- Total stockholders' equity 64,104 -------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 485,606 ============== See Accompanying Notes to Financial Statements F-2 CTD HOLDINGS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, ---------------------- ----------------- 2001 2000 2001 2000 ---------- ---------- ---------- ---------- PRODUCT SALES $ 61,262 $ 67,731 $ 234,043 $ 289,052 COST OF PRODUCTS SOLD 4,899 4,941 22,788 44,186 ---------- ----------- ---------- ---------- GROSS PROFIT 56,363 62,790 211,255 244,866 SELLING, GENERAL AND 74,892 76,308 213,575 239,638 ADMINISTRATIVE EXPENSE ---------- ---------- ---------- --------- INCOME (LOSS) FROM OPERATIONS (18,529) (13,518) (2,320) 5,228 ---------- ---------- ---------- ---------- OTHER INCOME (EXPENSE) Other income (expense) 572 (159) 3,376 118 Interest expense (3,771) (3,224) (25,454) (14,633) Total other income (expense) ( 3,199) ( 3,383) (22,078) (14,515) ----------- ---------- ---------- ---------- Net loss from continuing operations (21,728) (16,901) (24,398) (9,287) Loss from discontinued operations (11,072) (51,023) (35,974) (194,215) Impairment allowance on assets of discontinued operations (20,113) - (20,113) - ---------- ---------- ---------- ---------- NET LOSS $ (52,913) $ (67,924) $ (80,485) $(203,502) =========== ========== ========== ========== NET LOSS PER COMMON SHARE From continuing operations $ (.01) $ (.01) $ (.01) $ (.01) From discontinued operations $ (.01) $ (.01) $ (.01) $ (.05) ---------- ---------- ---------- ---------- Total loss per share $ (.02) $ (.02) $ (.02) $ (.06) =========== ========== ========== ========== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 4,753,720 3,763,440 4,272,239 3,639,392 =========== ========== ========== ==========
See Accompanying Notes to Financial Statements F-3 CTD HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Increase (Decrease) in Cash and Cash Equivalents (Unaudited) Nine Months Ended September 30, -------------------------- 2001 2000 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (80,485) $ (203,502) ------------ ------------ Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 38,036 16,444 Stock issued for services 56,077 30,000 Increase in accounts receivable (11,281) (32,780 Decrease in inventory 9,137 24,673 Decrease in other current assets 4,286 25,500 Increase (decrease) in accounts payable and accrued expenses (44,951) 129,351 ------------ ------------ Total adjustments 51,304 193,188 ------------ ------------ NET CASH USED IN OPERATING ACTIVITIES (29,181) (10,314) CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment (3,595) (105,687) Repayment of employee loan 7,358 15,387 ------------ ----------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 3,763 (90,300) ------------ ----------- CASH FLOWS FROM FINANCING ACTIVITIES Payments on long-term debt (15,718) (18,243) Net proceeds from (payments on) line-of-credit (4,772) 22,207 Net proceeds from (payments on) loan payable to stockholder 34,162 (6,775) Proceeds from sales of stock - 30,000 ------------ ------------ NET CASH PROVIDED BY FINANCING ACTIVITIES 13,672 27,189 ------------ ------------ NET DECREASE IN CASH AND CASH EQUIVALENTS (11,746) (73,425) CASH AND CASH EQUIVALENTS, beginning of period 16,690 73,425 ------------ ------------ CASH AND CASH EQUIVALENTS, end of period $ 4,944 $ - ============ ============ (Continued) F-4 CTD HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Increase (Decrease) in Cash and Cash Equivalents (Unaudited)
Nine Months Ended September 30, --------------------------- 2001 2000 ------------ ------------ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid for interest $ 25,454 $ 14,633 ============ ============ SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES Purchase of land, building and equipment with debt financing $ - $ 13,160 =========== ============ Acquisition of goodwill by issuing common stock $ - $ 10,000 =========== ============ Common Stock issued for services $ 56,077 $ 30,000 =========== ============ Stock issued to officer in satisfaction of bonus Accrual $ - $ 7,800 ========== ============ Stock issued to consultant for prepaid public relations services $ - $ 40,000 ========== ============
See Accompanying Notes to Financial Statements F-5 CTD HOLDINGS, INC. NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2001 (Unaudited) The information presented herein as of September 30, 2001, and for the three and nine months ended September 30, 2001, and 2000, is unaudited. (1) BASIS OF PRESENTATION: The accompanying financial statements include CTD Holdings, Inc., and its subsidiaries. The accompanying financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Rule 10-01 of Regulations S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three and nine month periods ended September 30, 2001, are not necessarily indicative of the results that may be expected for the year ending December 31, 2001. For further information, refer to the financial statements and footnotes thereto included in the Company's annual report of Form 10-KSB for the year ended December 31, 2000. (2) GOING CONCERN: As shown in the accompanying financial statements, the Company incurred a net loss of $ (80,485) during the nine months ended September 30, 2001, and as of that date, the Company's current liabilities exceeded its current assets by $ 181,643. Those factors create an uncertainty about the Company's ability to continue as a going concern. Management of the Company is reducing expenses and attempting to increase revenues to return the Company to a profitable position. Additionally, management is working with creditors to work out agreeable payment plans until the cash flow position improves. The ability of the Company to continue as a going concern is dependent on the Company achieving these plans. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. (3) NET LOSS PER COMMON SHARE: Net loss per common share is computed in accordance with the requirements of Statement of Financial Accounting Standards No. 128 (SFAS 128). SFAS 128 requires net loss per share information to be computed using a simple weighted average of common shares outstanding during the periods presented. SFAS 128 eliminated the previous requirement that earnings per share include the effect of any dilutive common stock equivalents in the calculation. F-6 CTD HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2001 (Unaudited) (4) DISCONTINUATION OF MUSHROOM FARMING OPERATIONS: During the first quarter of 2001, the Company discontinued its mushroom growing operation. In accordance with Statement of Financial Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," the Company reviewed the long-lived assets related to the mushroom farming operation to determine if the carrying value of the assets may not be recoverable. When an impairment is identified, the Company recognizes a loss for the difference between the carrying amount and the estimated value of the asset. The fair values of the assets evaluated were based on an estimate of discounted cash flow analysis or recent sales information of similar assets. During the third quarter of 2001, the Company determined there was no impairment of land, property or equipment related to the mushroom farming operations. However, the Company determined there was an impairment in the carrying value of goodwill and other intangible assets related to the mushroom farming operations. Therefore, the Company recorded a write-down of $20,113, which reduced the carrying value to zero at September 30, 2001. The carrying value of the remaining idle long-lived assets related to the mushroom farming operations was approximately $172,000 at September 30, 2001. Mushroom related revenues for the prior nine months ending September 30, 2000 were approximately $24,000 with a related loss from operations of approximately $(195,000). (5) COMMITMENTS: During the third quarter of 2001, the Company entered into a financial services agreement with a consultant. The Company paid $2,500 and issued 50,000 shares of common stock valued at $9,200. The value of the common stock was based on the trading value on the date of award less a discount for lack of market float for the stock. The 50,000 shares of common stock were obtained from the Company's president for $3,125, and the difference of $6,075 was recorded as an increase to additional paid - in capital. The Company charged the total consultant compensation of $11,700 to expense. On May 31, 2001, the Company entered into a one-year employment contract with its president with an annual salary of $30,000. In conjunction with the employment agreement, the Company issued 800,000 shares of common stock valued at $50,000 for salary earned under the agreement plus bonuses. F-7 Item 2. Management Discussion and Analysis or Plan of Operation PART II: Other Information Item 2. Management Discussion and Analysis or Plan of Operation Management Discussion and Analysis Liquidity and Capital Resources As of September 30, 2001, the Company's working capital deficit was ($181,643) compared to ($158,003) at June 30, 2001. The expected continuing improvement in working capital was adversely affected by a the loss from operations for the three months ended 09/30/01. By enforcing stringent expense reduction policies and concentrating on sales of cyclodextrins by CTDI, management expects profitability to achieve positive working capital by the end of the fourth quarter. The Company plans to use cash flow from anticipated profitable fourth quarter operations to further reduce current liabilities. To simplify its accounting and to reduce the expenses attributed to that additional accounting effort, the Company has dissolved the NSME subsidiary. However, the Company will still maintain its relationship with a University of Florida investigator that will eventually lead to the identification and quantification of the content of ajoene and eritadenine (two anti-cholesterol agents) in its shiitake mushrooms based on earlier findings from its preliminary studies of shiitake mushroom extracts with that same investigator. The Company completed its operational consolidation to one location by moving its laboratory to the Company-owned facilities in High Springs, Florida. The Company's $30,000 upgrade of its web site last year has provided a steady increase in sales opportunities, with monthly revenues resulting from internet contacts continuing to contribute positively to third quarter sales. The Company issued 725,000 shares of its common stock, registered under Form S-8, to its president in satisfaction of $45,313 in deferred salary due. The stock was valued at $.06125 per share, which is 50% of the trading value on the award date. The 50% discount was deemed appropriate due to limited trading volume in the Company's stock, the large size of the block of stock and other trading restrictions. Results of Operations Sales of cyclodextrins and related manufactured complexes have always been highly volatile. In efforts to offset this volatility, the Company has changed its previous strategy and now has chosen to focus its sales efforts on its existing large customers in efforts to make these sales grow predictably. Total product sales decreased ($84,814 vs. $61,262) from the 2nd quarter, 2001, to the 3rd quarter, 2001, however, on an annualized basis, sales for 2001 should be about the same as in 2000 (excluding NSME sales). The benefit in 2001 will be that expenses will be significantly reduced thereby enhancing profitability. CTDI's product sales for the third quarter ($61,262) were 90 % of sales for the third quarter of 2000. Again, the great volatility on a quarter to quarter basis from year to year makes such comparisons difficult to interpret. The Company's SG&A expenses in the third quarter ($74,892) were about the same as those of the 2nd quarter, 2000 ($76,308). The Company's SG&A expenses for the nine months ended September 30, 2001 ($213,575) are 11 % less than the SG&A expenses of the same period in 2000 ($239,382). Expenses continue to be management's major focus. Now that NSME has been eliminated, management expects to see a maximal effect of reduced expenses on profitability in the fourth quarter. With the greatly reduced expenses implemented for 2001, management expects to continue improving the Company's financial condition to profitability by year end, even assuming the conservative annual sales rate of $250,000. Product sales of CTD are primarily to large pharmaceutical and food companies for research and development purposes. Sales of both products and services continue to be concentrated among a few large customers. Sales to its largest customer, increased in the second quarter, leveled off in the third quarter, and are expected to peak in the fourth quarter. With the elimination of the operational activities of the NSME subsidiary and concentration of effort on its largest customers, the Company's gross profit margin for the 3rd quarter of 2001 set another record high (92.7%) The Company will continue holding expenses to the lowest possible levels and concentrating sales efforts on its large established customers, rather than expanding into new products and new product areas. In the third quarter the Company began due diligence procedures in the evaluation of a potential acquisition. The Company believes it is in a strong position to complete this acquisition. Forward-looking Statements All statements other than statements of historical fact in this report are "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995, and are based on management's current expectations of the Company's near term results, based on current information available and pertaining to the Company. The Company assumes no obligation to update publicly any forward-looking statement. Actual results may differ materially from those projected in the forward-looking statements. These forward-looking statements involve risks and uncertainties, including, but not limited to, the following: demand for cyclodextrin and mushrooms; changes in governmental laws and regulations surrounding various matters, such as labeling disclosures; production and pricing levels of important raw materials; and difficulties or delays in the development, production, testing and marketing of products; product margins and customer product acceptance. Item 6. Exhibits and Reports on Form 8-K None. (a) Exhibits Exhibit Description Page (2) Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession None (4) Instruments defining the Rights of Security Holders None (10) Material Contracts None (11) Statement re: Computation of Per Share Earnings Note 8, Financial Statements (15) Letter re: Unaudited Interim Financial Information None (18) Letter re: Change in Accounting Principles None (19) Report Furnished to Security Holders None (22) Published Report re: Matters Submitted to Vote of Security Holders None (23) Consents of Experts and Counsel None (24) Power of Attorney None (27) Financial Data Schedule (99) Additional Exhibits None (b) Reports on Form 8-K: None SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CTD HOLDINGS, INC. DATE /s/ C.E. "Rick" Strattan ----------------------------- October 25, 2001 C.E. Rick Strattan, President Chief Officer, Chief Financial Officer